Agent commission on new construction

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FreakShow

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Hi All,

Does anyone know the rules regarding splitting commission on new construction?  We are looking to buy a new construction home in Irvine and a friend suggested finding an agent that will split the commission for just showing up the first time you visit the sales office.  Is there anything illegal about that?  And if not, are there any other issues associated with it (taxes to the agent, etc.)?  Does it vary by builder or do the same rules apply to all?  You probably can't apply it towards the closing of the new home but can it just be exchanged after closing?

Any input on the matter is greatly appreciated.  Thank you!
 
Most won't allow towards closing cost, I believe I've seen one recently that did

Each one is different

Some agents just forwards the tax for the split, others don't
 
Nothing illegal.  I would make sure the agent gets in the sales office and fill out the necessary form and get a copy of it first before you start talking to the sales folks.

I did it with AW.  We are waiting for the escrow to close and get that big check... ;)
 
Thank you guys.  I told AW I'd bring him along if my friend can't make it down.

Do you guys know how the mechanics of the transaction would work?  He works for a broker.  So does the rebate go to the broker, they take their cut, and then pass the rest down to my friend?  Then does he 1099 my half to me so he doesn't get taxed on the full amount?
 
The commission goes to the broker -> The broker takes their cut -> the balance goes to the Agent -> Agent writes you a check.

There shouldn't be a 1099 as the rebate isn't taxable, just lowers the cost basis of your home. Some Agents will try to increase their cut of the commission by saying they need to pay tax on the full commission, but that's not the case. Whatever rebate they give you is tax deductible for them.
 
Nothing illegal about commission rebates for new homes.  Rule is that all builder have is that you register with your agent on your first physical visit at the sales office.  Most all builders will not allow agents to rebate their buyer any portion of the broker co-op commission in or outside of escrow.  Obviously what I do outside of escrow the builder won't know about it.  Some of my clients ask for a rebate agreement which I gladly provide while most know that my word is as good as gold.  The rebate is not taxable to the buyer (a 1099 is only issued if there is earned income...how did the buyer earn income from the agent?), it just reduces the cost basis in the home for the buyer and the agent will deduct the rebate on their Schedule C. 
 
OCVillager said:
best_potsticker_in_town said:
The commission goes to the broker -> The broker takes their cut -> the balance goes to the Agent -> Agent writes you a check.

There shouldn't be a 1099 as the rebate isn't taxable, just lowers the cost basis of your home. Some Agents will try to increase their cut of the commission by saying they need to pay tax on the full commission, but that's not the case. Whatever rebate they give you is tax deductible for them.
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Can you be a bit more clear on this? I was assuming the Broker will issue me a 1099 and not a check. Why would he give a check and lose money paying taxes on his own?
Thanks.
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As I mentioned above, a 1099 is only included to someone who earns income.  A buyer does not provide any kind of work or service to the agent to earn income.  The broker will issue the agent a 1099 for the full commission less any broker fees.  The agent will report all of that income on line 1 of the Schedule C and then on line 2 of the Schedule C the agent will deduct their commission rebates so the net taxable amount to the agent is the commission - broker fees - buyer rebate.
 
OCVillager said:
Hi USCTrojanCPA,

Thanks for the details. In my case it was the Broker (not his agent) that signed the co-op agreement with builder during our first visit. What form of payment should I expect from the broker? Say, for example he promised 30% of the commission to me...And how soon can I check on that? Only after closing?
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Either it's an agent or broker, the rebate should be done the same way....via a check right after closing (that's why I've done it for years and years).  How soon after closing, within a week for sure.  Definitely do not allow him to 1099 you for the rebate or tell you that he's adjusting your rebate because of the taxes related to your rebate because that's not correct.
 
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